Wells Fargo (WFC)

Wells Fargo is the fourth-largest U.S. bank by assets, partially exiting seven years of regulatory cap (the asset-growth ceiling stemming from the fake-accounts scandal). It is a diversified universal bank with a gigantic deposit base (US$1,426.2bn) as funding. Under Charlie Scharf, profitability is climbing (ROTCE 13.1%→13.4%→14.6% over the last three fiscal years) and the balance sheet grew again once the asset cap was lifted in June 2025 — though the rest of that regulatory agreement and a separate agreement with the OCC remain in force per the 10-K itself. It is a solid, improving business, with quality closing in on that of its largest peers.

A bank is valued at the equity level (normalized P/E + price/tangible book, ROTCE as quality), never by EV — deposits and debt are funding, not structure. At ~$84, that is ~12× and 2× price/tangible book — the cheapest in the large-bank group except Citi, despite a ROTCE that is already closing in on its peers'.

The base case projects common income growing with the freed-up balance sheet and efficiency, with sustained buybacks (falling share count) pushing EPS above aggregate income growth. At an exit multiple with a modest re-rating (still below JPMorgan's) that gives ~$139/share → a total return of +13%/year. The value comes from the gap between recovered quality and the lagging multiple, plus buybacks.

It trades at a real discount to value, though short of the required margin of safety. The opportunity exists because perception still lags reality: Wells Fargo trades at the cheapest tangible book value in the large-bank group except Citi (2×) despite a ROTCE (14.6% in 2025, up from 13.1% in 2023) that is already closing in on its peers'. The market still applies part of the discount from the regulatory burden of the 2016 scandal, which was only half-resolved: the asset-growth cap was lifted, but the rest of the 2018 consent order and the 2024 agreement with the OCC remain in force per the filing itself. The verdict is Undervalued: as the market recognizes the already-recovered quality, the multiple has room to move closer to its peers'; in the meantime, aggressive buybacks compound value per share. The adverse scenario (a recession that hits office credit plus a rate-cut cycle that compresses the margin) brings the value close to the price; the favorable scenario (a fuller re-rating toward its larger peers along with efficiency gains) is a substantial upside. The asymmetry favors the upside.

Four things. The re-rating: the thesis rests on the market closing part of the multiple gap as the remaining regulatory burden is resolved — if ROTCE holds and the multiple doesn't rise, the return rests solely on buybacks and balance sheet growth. Office credit: the commercial office real estate sub-portfolio (11.2% delinquent) is the stress point, concentrated in California and New York. Rates: Wells Fargo's sensitivity is growing (−US$5.3bn of interest income at −200 basis points in 2025, versus −US$4.4bn in 2024); a Fed rate-cut cycle compresses that income. And the remaining regulatory matters: the rest of the 2018 consent order and the Sept-2024 agreement with the OCC remain active, plus up to ~US$1.7bn of reasonably possible legal losses above what's provisioned (mortgage discrimination litigation, card interchange fees, and the Seminole Tribe trust litigation, with an adverse verdict on appeal). If ROTCE consolidates and credit holds up, the tangible book discount closes; if a recession bites into credit, rates fall or the regulatory matters reopen, the return dilutes.